This time next year (April 2026), there will be new legislation introduced that will affect a large number of temporary recruitment agencies and the workers they provide.  

The goal of this change is to remove the legal responsibility of delivering PAYE from the umbrella companies that many recruitment agencies rely on. This in turn will put the responsibility onto the agency themselves, so that if there is any non-compliance, repercussions will be faced by the agency or end client, not the umbrella company.  

At Back Office, we pride ourselves on keeping our finger on the pulse when it comes to these kind of changes, and decided to put a short blog together that will explain what this new legislation is, what changes it will make, and whether it will affect you.  

 

What is the New Legislation? 

When this new policy comes into effect, the umbrella company that end clients or temporary recruitment agencies use will no longer be responsible for the compliancy of PAYE/NIC.  

Instead the end client (if they deal directly with the umbrella company) or the agency will be responsible for accounting for PAYE and will face legal repercussions if any non-compliance occurs. Examples of this can include: 

  • Non-Transparent Pay Practices  
  • Fraudulent or Misleading Documentation 
  • Tax Non-Compliance 
  • Denial of Employment Rights 

This legislation should be a preventative measure that stops any abuse of the system that can harm the workers and the amount they are paid. However, if any recruitment agencies aren’t aware of these changes they could face issues later on.  

 

What are Umbrella Companies in Temporary Recruitment? 

Currently, umbrella companies are used within the temporary recruitment sector as a way to supply and pay temporary workers. As a rule, the umbrella company will employ the workers and pays their workers via PAYE. The role of the recruitment agency is to find temporary work for the workers and offer them the position(s).  

This system works well, but it is open to abuse. As the umbrella company is not currently regulated as an employment business, they are able to pay workers less than it laid out in their contracts. A common way of doing this is by deducting the NIC from the workers’ pay without the documentation reflecting this. There are also examples of missing holiday pay or pension contributions.  

You may think this would be easily noticed, but with the use of fraudulent documentation, it isn’t immediately clear that the numbers don’t add up to what they should.  

The use of an umbrella company has become more popular in the last decade, but legislation has fallen behind. This new change will ensure that these companies are considered employment businesses to allow for their future regulation.  

 

Why this Legislation is Important 

Temporary working is beneficial for a large number of people, those who want more freedom to choose how they work, the hours they do, or the companies they work for. However, relying on umbrella companies to pay them on time, and the correct amount, can leave them vulnerable to abuse of the system, through no fault of their own.  

This new legislation will ensure that, if there is any evidence of non-compliance, the end client or recruitment agency that assigned them the work will be punished and discouraged from any unfair practices in the future.  

In April 2026, temporary workers will be able to take on new roles without worrying about if they will be paid correctly, or if working for an umbrella company is the best thing for them. 

 

How this Legislation will Affect Temporary Recruitment Agencies 

As a temporary recruitment agency, or a client that relies on them for temporary workers, this change means you will have to ensure your PAYE and NIC is always correct, going to additional lengths so that your workers are receiving the correct pay.  

Some temporary recruitment agencies are daunted by the new legislation, as there will be added pressure to check payroll to guarantee it is correct. If your team is already stretched thin, don’t worry, we’re here to help.  

Our service includes: 

That final feature is one of the most important if you’re concerned about this new legislation. Next year it’ll be your responsibility to check your payroll, ensuring its accuracy each week.  

By choosing us for your outsourced back-office support, we’ll handle the headache of payroll on your behalf. With payroll funding in place, you’ll always have access to the funds required to pay your workers.  

This is in addition to the rest of our service, which is all designed to give you peace of mind. With accurate invoices, funding, and someone keeping an eye on your clients’ credit limits, you’ll be able to focus on what you do best: assigning your workers to the best jobs possible.  

If you are interested in working with an umbrella company, we’ll help you with that too!  We conduct thorough compliance checks on umbrella companies to make sure they’re the best one to work with, and that they won’t cause any problems for you down the line. This compliance check benefits us and the end client too, making it mutually beneficial for all involved.  

We also work alongside HMRC guidance to find the most reliable umbrella companies, mostly relying on their list of named tax avoidance schemes, promoters, enablers and suppliers, which makes our research much easier.  

 

Why Choose Back Office? 

We pride ourselves on building a strong working relationship with our clients. By assigning two points of contact, your payroll manager and your credit controller, they’ll become part of your team despite the distance, and will get to know you, your business, and your clients’ preferences.  

What also sets us apart are insights like this blog. We have ex-recruiters on our team, which is why we can stay abreast of the latest legislation and news as it happens. Not all of our clients will be aware of the impact these changes can have, so by being close by ready to offer advice and support, everything continues running smoothly.  

So if you’re ready to make a change and switch to a recruitment funding provider that cares about your business as much as you do, please don’t hesitate to get in touch. We look forward to hearing from you.